Mortgage and Portfolio Loan Guide

Jumbo Loans for Bad Credit

When seeking home financing with bad credit, your options may be limited. When seeking Jumbo Loans for bad credit, your options might even be more limited, but options are available.

Whether the low credit is due to recent foreclosure/bankruptcy/short sale or just recent collections, this post will tell you everything you need to know about how to get jumbo loans when you have bad credit.

What to Expect When Seeking Jumbo Loans for Bad Credit

In many cases, these loans can be done with as low as 500 credit score. These loans are typically referred to as “portfolio loans“.

When credit score is low, the lender is going to want to see strong compensating factors in order to give careful consideration on whether or not the loan can be funded.

Compensating factors that are helpful for approval if you do have bad credit:

  • Strong equity (or down payment). Although portfolio loans will allow 10% down payment (or 10% equity), typically that is if you have at least 660 credit and at least 2 years since major credit event like bankruptcy/foreclosure/short sale. The lower the credit, the higher the down payment. Example, if you have 500, it is likely you’ll need at least 25-30% down payment.
  • Strong liquid reserves. Lenders love to see that you have plenty of cash reserves or liquid reserves (401K, IRA, etc.) after it’s all said and done. It makes them feel comfortable knowing that if you were to fall on hard times, you have the means to still cover your mortgage and living expenses. Typically showing 6 months worth of reserves is a good sign.
  • Strong history with employer. Stability and consistency of income/employment is important. If you have been with your employer for 3 years, that factor will strengthen the overall profile. That doesn’t mean you’ll be declined if you don’t have 3 years on the job, but it does help if you do.jumbo loan with low credit
  • Low debt-to-income ratio. If you have bad credit, but a low debt to income ratio, it’s much more simple to demonstrate your ability to repay the mortgage. When calculating debt to income ratio, the lender will factor in your new mortgage payment (including taxes/insurance/HOA dues), and all other liabilities that are shown on your credit report. In addition, they will want to include any other real estate owned and taxes/insurance/HOA dues tied to those properties. The lender will take your monthly debt, divided by your monthly income, and that equals your debt-to-income ratio. Example, if your monthly debt is $5,000 and your monthly income is $15,000, your debt-to-income ratio is 33%. Some lenders will go as high as 55% (with strong compensating factors), but typically they are looking to see 45% or lower.
  • Low payment shock. Your current housing expense will be carefully considered when factoring in your new potential housing expense. It helps to show housing payment history, and not much of an increase when comparing present housing expense with new potential housing expense (unless it is a cash out refinance, and other monthly obligations are being paid off).

Be ready to give a thoughtful explanation as to why your credit is bad.

Portfolio loans are considered case by case, and it helps if you can clearly tell the story of what happened. [more on portfolio loans here]

4 Things You’ll Need To Do When Getting Jumbo Loans For Bad Credit

  1. Be prepared to tell your story. When getting a portfolio loan, the story matters. Take the time to have your facts straight and put it in writing. Help the lender understand exactly what the circumstances were which led to the credit challenge. Explain why these circumstances are isolated, and won’t happen again.
  2. Have all of your documents in order. Just like any other mortgage, when getting a jumbo loan with bad credit, you’ll need to document everything (income/credit/assets). Do not try to cut corners, or ask for exceptions on having all necessary docs. The lender is already taking a risk with lending on low credit. The goal is to minimize the layers of risk involved.
  3. Expect higher rates. When getting a portfolio loan you’re dealing with a different mortgage market than the conventional home financing world. These portfolio loans are designed to be a short term fix for short term circumstances. Once your credit meets normal lending guidelines, you’ll be refinancing into a traditional loan.
  4. Be patient. The underwriting process may take longer than traditional financing in some cases. People are surprised by this because they figure “outside-the-box” lending = quick-and-easy. That’s just not the case. Portfolio loans are carefully underwritten, and fully documented.

Alternative Documentation | Business Owners | Self-Employed

If you are a business owner who shows low net income on tax returns, a bank statement loan may be the best option for you to show your ability to repay the mortgage.

These loans allow self-employed individuals to use their personal or business bank statements to calculate income, and can be done with some low credit scenarios.

When using personal bank statements to qualify you’ll provide 12 months bank statements. Deposits will be averaged over that time frame, and unusual/unverifiable deposits will be excluded from income average.

When using business bank statements to qualify you’ll provide 24 months bank statements. You can only use business bank statements if you are 100% owner of the business. The deposits will be reviewed/averaged, and a “expense factor” will be applied. Typically, the minimum expense factor is 35%. So if you show 100K income, the usable amount is 65K. Your CPA will need to confirm what your expense factor should be.

[more on bank statement loans here]

Keep In Mind

  • Minimum down payment is 10%. The lower the credit, the higher the down payment.
  • Minimum credit score 500
  • Recent bankruptcy, foreclosure, short sale is okay
  • Typically need to show at least 6 months reserves
  • Having strong compensating factors help your likelihood of approval
  • Available on home purchase and refinance
  • Cash out refinance also available on jumbo loans for bad credit

In Summary

Having bad credit does not mean that you have to rent a home while you wait on getting your credit up to normal lending standards. A portfolio loan may be your perfect solution when seeking  jumbo loans for bad credit.

I invite you to reach out.

Get your questions answered.

If I cannot help, I should be able to point you in the right direction at the very least.

 

 

self employed home loans

Jumbo Loan After Foreclosure

How to Get a Jumbo Loan After Foreclosure

Getting a jumbo loan (or any mortgage for that matter) after foreclosure requires a close and careful evaluation depending on how much you can put down. Whether you’re getting a jumbo loan, traditional mortgage, or a portfolio loan; there are some things that you can do to prepare yourself to buy a home again.

We’ll look at some specific requirements below and hopefully give you the confidence you need to prepare yourself to buy again after having a foreclosure.

Buying a house with bad credit or damaged credit can be challenging, but it shouldn’t be impossible.

When you know what you’re up against, the task of getting ready and getting approved becomes much more attainable.jumbo loan after foreclosure

With so many folks regaining stability after the great recession, many find themselves to be in a housing circumstance where they are ready to upgrade to a better position, but don’t quite meet traditional lending guidelines. Whether it’s getting a larger home, or moving to a more favorable neighborhood many are ready to start a new chapter.

The light at the end of the tunnel is within reach for more people now than in the most recent number of years.

The problem that arises is the required waiting period after foreclosure or any major credit event like bankruptcy or short sale.

Traditional guidelines on a jumbo loan say you need to wait 7 years after foreclosure, but not if you’re getting a portfolio loan.

What is a portfolio loan?

Portfolio loans are non-traditional mortgage loans that are designed to meet the home financing goals of a borrower with unique circumstances. They are done by small banks, lenders, and credit unions. And these types of loans do not go by Fannie Mae, Freddie Mac, or FHA guidelines.

Whether it’s damaged credit, unique income, or property issues; portfolio loans are designed to be a solution for the tough scenarios.

The main factor when lenders evaluate potential portfolio loan candidates are: equity, reserves, and ability to repay.

More on Portfolio Loans here

What is the waiting period after foreclosure on a Jumbo Loan?

Typically what you’re going to find when seeking a jumbo loan after foreclosure is that 7 years is the waiting period with most lenders, but not with portfolio loans.

With a portfolio loan there are options where no waiting period after foreclosure or short sale is required.buying a house with bad credit

How do you suppose that is possible?

Obviously there are going to be strict guidelines if you’re looking to get around a major hurdle like a recent foreclosure. And the interest rates and costs are going to be higher than standard loans. These loans are considered higher risk. For that reason the lender has to mitigate that risk through pricing adjustments.

If you’re looking to get approved for a jumbo loan, and you’ve had a recent foreclosure, here are some basic things you should keep in mind…

No waiting period after foreclosure or short sale:

  • Minimum credit score is 580
  • 20% down payment
  • Must have 3 tradelines reporting on credit report for at least 12 months
  • Max loan amount is $1MM
  • 6 months reserves minimum (9 months for loans >750,000)

For better rates, and 2 years after foreclosure or short sale:

  • Minimum credit score is 620
  • 25% down payment (or as low as 10% down if credit score is 680+)
  • Must have 3 tradelines reporting on credit report for at least 12 months
  • Max loan amount is $1.25MM
  • 6 months reserves

For even better rates, and 3 years after foreclosure or short sale (ideal scenario):

  • Minimum credit score is 680
  • 30% down payment
  • Must have 3 tradelines reporting on credit report for at least 12 months
  • Lax loan amount is $1.25MM
  • 9 months reserves

Not all products are available in all states, and guidelines can change. But I at least wanted to communicate what can typically be expected. Reach out to me for your specific questions and scenario.

Although 30 year fixed options are available, it typically makes more sense to do these on a 5 year or 7 year ARM because of the rate difference. The goal is to refinance into something more suitable when the waiting period from foreclosure meets traditional guidelines.

Keep in mind, for primary residence, in many cases there are no pre-payment penalties on these loans.

Portfolio loans like these are a temporary fix for temporary circumstances. In most cases, it still makes more sense than renting because you’re building equity in the home you want, in the area you desire.

Portfolio loans are also available for business owners, and investors.

How long does it take to close?

Typically these loans take longer to close than the typical mortgage because of the risk involved and the special attention required.mortgage after short sale

The first step is to get pre-approved.

Although some close within 45 days, some can take 60 days.

The most important thing you can do to reduce the amount of time it takes to close your loan is to provide everything that is requested as soon as you can. Typically, if the communication is sound, and what is requested is provided, the process is much more smooth.

For portfolio loans especially, having a thought out letter of explanation can go a long way. The reason I stress that is because these loans are treated with more common sense logic than most loans you’ll find. The lender truly tries to find a way to say “yes”. But if the story doesn’t make sense, and the explanation is shaky, things could become more difficult than they need to be.

Trying to get by with the bare-minimum documentation often results in frustration and delays.

Be honest, and be transparent. Don’t wait for the lender to find an issue that you know exists. Be open about it so that a solution can be discussed.

portfolio mortgage lendersIf you have had a recent bankruptcy, foreclosure, or short-sale and you’re back on your feet, I invite you to reach out to me. I can’t help in every scenario, but many times I am able to make it work even if other lenders have said the loan cannot be done.

When you reach out, you won’t be connected with an assistant or someone overseas, you’ll be connected with me directly. About me

I hope you found this to be helpful, and I look forward to helping you accomplish your home ownership goals.

real estate investment loans

Adam Lesner | NMLS 198818 | Troy, Michigan

Michigan, Massachusetts, and Florida. Also offering financing in most states across the US including (but not limited to) Georgia, North Carolina, South Carolina, Alabama, Arizona, California, Colorado, Delaware, Washington DC, Illinois, Indiana, Iowa, Kentucky, Louisiana, Maryland, Minnesota, Missouri, Ohio, Oklahoma, Oregon, Tennessee, Virginia, Wisconsin.